Dow Jones Industrial Average 1900- present (log scale, monthly)

Click for ginormous chart

Source: Monthly Chart Portfolio, Merrill Lynch Market Analysis, November 4, 2011


I mentioned yesterday I had a long term chart of secular bear markets that was informative; the above chart (via Merrill Lynch) is what I was referring to.

There are three issues worth noting here plus one important caveat:

1. The long 10-20 year secular bear moves seem to have lots of major rallies and sell offs; the ups and downs are intense, but make little in the way of net progress. After 15 years, the average secular bear is essentially unchanged.

2. The roller coaster ride leaves investors psychologically exhausted. They come to forget the good times of so long ago, and believe there is no way out of the morass. Naturally, they are reluctant to believe in the new bull market once it begins.

3. The major bottom seems to occur about halfway through; this implies that the March 2009 lows will not be revisited (note I only wrote IMPLY and not guarantee or forecast!)  If we look at the current Bear versus the ’66-’82 (with lows like ’73-’74), it suggest that 8500-9000 on the Dow is possible, but barring another crisis 6500 is much less likely. And it also suggests that the next secular bull might begin around 2016-18.

Now for the caveat: We have but one century of data, and within that 100 year span, only four examples of long term secular bear markets. We really need 500-1000 years of data, 20-40 secular bears during the era of modern capital markets. That would allow us greater confidence that these four patterns aren’t merely coincidences.

See you around 2900 to validate the data . . .

Category: Markets, Quantitative, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

35 Responses to “4 Major Secular Bear Markets, 1900-2011”

  1. Molesworth says:

    If ECRI says there’s going to be another recession, I expect the market will be heading down. Rather than your 50% call, I expect it’s pretty much 99% based on ECRI secret sauce success.

  2. DeDude says:

    To me a big caveat is that we have no good model to explain why the time range given by the 3 previous secular bears should represent the “limit”. Why would they not be 8 years or 28 years long? Maybe the length is simply determined by the timing of events strong enough to drive another Bull? Maybe secular bears are the “normal” default of the markets only to be interrupted when some “crazy” thing happens to create a Bull market. I think the next Bull will begin when something happens in alternative energy that will cut our current energy prices down to about 1/10’th. That could provide a serious kick in the ass(ets) of the Bull.

  3. AHodge says:

    i bet this vertical log scale is wrong
    suspicions hightened by it not labeled
    its supposed to show % ch as equal
    early 30% down 85-90 last one down 50-60—doesnt look like that to me

  4. mathman says:

    That’s funny BR “See you around 2900 to validate the data . . .”

    We probably won’t make it to 2100 the way things are going.

  5. gfeirman says:

    “See you around 2900 to validate the data”: I guess this is the opposite of “In the long run, we’re all dead” :)

    I think you are right that the March 2009 lows are analogous to the December 1974 lows from the previous secular bear market. I think we are currently in a cyclical bear but it won’t be Armageddon like 2008-09 – though it will still be bad.


    BR: It turns out my BP and cholesterol are very good, so I have reason for optimism!

  6. AZmando says:

    Looks like there is a 1 in 4 chance of dropping below the box after popping out and over the top of it. N = “too small.”

  7. Da55id says:

    False picture (unintended)!!

    Every few years one or more companies are kicked out of the DOW or S&P. This leads to survivor and selection biases that falsely and misleadingly make it seem that the DOW et al just go up forever.

    Instead, what is needed is a series of DOWS per decade (etc) that are shown by their vintage. For instance, DOW 1929 – 1939. What would it show? That 1929-39 decadal DOW vintage series would be ridiculously lower than the 1999 – 2009 DOW. Which itself would be lower than the ongoing 2010 – 2011…because a significant number of the companies in each 10 year vintage are simply DEAD, TODT, DECEASED, Bleedin’ demised!!

    How can this series be constructed…anybody? Beuhler?

  8. mathman says:

    sorry, i forgot the link to my statement:
    (from the article, toward the end)

    “Energy Flow Decline and the Collapse of Complex Societies

    Joseph Tainter has it right. In The Collapse of Complex Societies he developed the thesis that societies try to solve problems by increasing complexity. But complexity has costs associated with it that are sometimes hidden from the normal accounting. These hidden costs often show up as new problems and the societal response is to increase complexity yet more. And increasing complexity follows a law of diminishing returns*. At some point the next unit of complexity has a much greater cost than what it was supposed to fix. That is when things start to break down.

    Lately Tainter is speaking to the relationship between problems, complexity, development, and energy flow. He recognizes that it is energy flow that allows humans to attempt solutions to problems. And it is energy flow that is needed to maintain the structures developed. He speaks to the historical patterns of civilizations, fueled mostly from real-time solar flows (i.e., agriculture), growing to a point where the energetic cost of shipping food into the core became too high. The civilizations could not sustain themselves but also could not recognize what was really happening.

    Tainter and several other social scientists, are using systems thinking and analysis to see this pattern in all of the collapses. There is invariably a proximal cause or two that everyone can see, such as the invasion by barbarians or climate change, and that everyone concludes is THE cause. But now we are seeing that the real underlying cause of collapse is the decline in energy flow that was needed to sustain the complex organization that had evolved over time and many generations.

    Today we are a global civilization even if we still recognize borders between nations. Our commerce is global in scope and is fueled by prodigious amounts of fossil fuel energy. Our agriculture is totally dependent on fossil fuels (the Green Revolution) for growing and delivering the food. Every home in the developed world depends on heating and cooking from advanced power sources like natural gas and electricity (only some of which is produced by nuclear or hydro power). We need powerful transportation vehicles to get us to and from work. Our system is completely and irreversibly dependent of fossil fuels. And guess what is diminishing**?

    Our global society is in the beginning stages of collapse. The wealthy sense this even if they can’t put their fingers on what is wrong. They are more motivated than ever to try to aggregate all of the paper wealth they can. I do think most of them believe that their efforts to create paper wealth are on a par with manufacturing, for example, in helping to lift all boats. I suspect some of them feel totally justified in taking home huge bonuses as they attempt to build a hedge for themselves against what seems to be a sinking boat. They are working on their life rafts after all. This is a normal human proclivity and you, dear readers, and I, and all of the occupiers would probably do something similar if we were in a position to do so. None of us has transcended our biology and all of us will do what we can to protect ourselves when we sense the impending loss of the system that gave us our sense of well being. Of course I support their demand that what wealth there is being created now should be more equitably distributed. But it has to be real wealth, not the phony money created by Wall Street gamblers and fractional reserve banking. I continue to urge that real jobs can be created for many of the unemployed in a modern version of the CCC (Civilian Conservation Corp) where the goal is to restore depleted soils for organic agriculture under the permaculture methodologies. So what if these are government jobs. And so what if the rich are taxed heavily to fund it. That would go a long way to doing something worthwhile, investing in real infrastructure. And it would provide incomes for many currently unemployed (it could also be a way to reabsorb the military personnel coming back, at long last, from our foreign adventures.) A program like this could help alleviate the inherent conflict that is boiling up and it would slow down the collapse somewhat.”

  9. kaleidic says:

    To say that major bottom occurs halfway through implies that March 2009 lows will not be revisited logically assumes that March 2009 was halfway through – not! In fact the worst may yet be to come.

  10. [...] A look at four secular bear markets.  (Big Picture) [...]

  11. crunched says:

    My vote is we’re not halfway through this one either. I think all the meddling the government/Fed has done in this one will prove to make it much longer in the end.

    We won’t be coming out of this one until some amazing new industry or technology comes along. Or there’s a war. I don’t see either anytime soon. I think this one is more about digesting the gains of the last 200 years, not 20.

  12. JDinCT says:

    Hey Barry,
    What would make you sell your longs?
    News? Price action? Both.

  13. randy says:

    @ Da55id: The cycling of companies in and out of the DOW is a very good point, but I don’t think it is valid at this level of analysis. This is a 100,000ft analysis, which is intended to take that cycling into account. That cycling is part of the pattern, at this height. If we dig much deeper then we will have to take that cycling of companies into account.

    With an analysis at this height the important question to ask is what trends have changed during this period. I’ll rattle off a few that I think have changed:
    Over this period of time, how has X changed? where X is:
    * number of investors (increasing during this span?)
    * average age of investors (increasing during this span?)
    * average expected remaining lifespan of investors (increasing during this span?)
    * average net worth of investors (decreasing during this span?)
    * number of companies in the market (increasing during this span?)
    * number of companies that cycle in or out each year (Da55id’s point)
    * number of computer trades occurring per day (increasing during this span!)
    * percentage of the market held by individual versus institutional versus corporate investors (I think that institutional investors have increased significantly over this span?)
    * average leverage of the financial institutions holding positions (increasing during this span?)
    * etc…

    I think that the presence of robot traders dramatically affects the way that the market behaves. I think that the increased leverage that the investment houses are operating under dramatically affects the way that the market behaves. I think that the increased number and age, and lower overall net worth of investors affects the way that the market behaves.

    All of those long-term trend changes over the past century probably alter the markets behavior enough that these sorts of history lessons are interesting, but only lightly predictive.

  14. nofoulsontheplayground says:

    In real, inflation adjusted terms, the August 1982 low was the low of the 1966-1982 bear market. This is one example where the real low was at the end of the 17-year cycle. That said, the current bear market is part of a 70-year cycle that suggests the path should follow a similar path of the 1929-1946 cycle.

  15. You cannot adjust the prices on a chart for inflation and expect any sort of useful result.

    By that logic, look at an inflation adjusted chart for the 100 years –

  16. Da55id says:

    @randy, all Excellent points. I guess my point is that absent the removal of dead/dying companies and simultaneous replacement with healthy hi-growth companies the DOW would not show a flat stairstep pattern, but would clearly show a series of extreme bungee jumps into abyssals followed by much slower ascents.

    For a buy and hold investor, the DOW is false comforting deceiving index.

  17. gman says:

    Given the potentially record by 10% of profits for SP in 2011 as per todays Bespoke coupled w/ demographics (older more risk averse investers) and the euro dept crisis I am finally begining to see a a bear mkt low in PE in the next handful of years. In the next couple of years have a sp earning $120 w/ a crisis induced flush down below 800…viola..

  18. low-tech cyclist says:

    Assuming one’s income generated a surplus that could be invested, it seems to me that whether that added to one’s fortunes or not depended a great deal on when one had money to invest. If you caught the bull market of the early 1950s through mid 1960s, or the 1983-99 bull market, you probably gained quite a bit from your investments. If you made your big money starting in 1966 and retired in 1983, OTOH, it sucked to be you.

    I first became aware of the market around the time the Dow broke 900 ca. 1966. I was in my pre-teen years at the time. The Dow spent the next 15 years treading water; while index funds didn’t exist, I remember thinking that if one could ‘invest in the Dow’ there was no real point to it unless you could time the ups and downs really well.

    I spent almost all the 1983-99 boom in an alternation of grad school (twice) and just kinda middlin’-paying jobs (twice). But well before the end of that period, I was realizing that my youthful idea about the Dow was wrong, and besides, there were index funds: if I ever started making money, I ought to invest in one.

    In the spring of 2000, after finishing our taxes, my wife and I realized we were finally getting ahead in the game. We finally had money to invest – as we have had ever since. And the $#@! markets have been in that secular bear ever since.

    Education, hard work, perseverance – these things matter. Whether you’ve got macro-level headwinds or tailwinds – these things matter too.

  19. Futuredome says:

    I used the investments from the 83-99 market to pay my way through college without borrowing a cent(sans a grant from the veterens).

    You can make money in generative markets or you can fail.

  20. nofoulsontheplayground says:

    BR, here’s an inflation adjusted Dow chart(courtesy of Chart of the Day) from 1900 to March 2011. I know you’ve seen this many times, but my point is an inflation adjusted chart can be useful if you look at the rising channel within the context of the roughly 17-year bear market cycles started in 1929, 1966, and 2000.

  21. machinehead says:

    ‘You cannot adjust the prices on a chart for inflation and expect any sort of useful result.’ — BR

    Both BR and nofouls have a point here. Psychologically, it’s the nominal numbers that stick in the mind. The ‘Dow Thou’ was upside resistance from 1966 all the way to 1982, so the nominal index clearly has a psychological impact.

    But as nofoul’s inflation-adjusted chart shows, stocks were slaughtered for a 75% loss of purchasing power between 1966 and 1982. Anyone who thought in August 1982 (at Dow 777) that the Dow was down only 22% from its 1966 high of 995 was a serious victim of money illusion. People deserted the Seventies ‘hate market’ in droves when they could earn an easy 10% on T-bills.

    Both perspectives are needed. Round numbers from nominal charts can have lasting technical significance. But over periods of decades, one has to correct for inflation. Otherwise you’re using a unit of value (the dollar) which is melting like an ice cream cone in the summer sun beneath your feet.

  22. PeterR says:

    The Big Churn 1997-2021, posited on August 30, 2001 to resemble the 1959-1983 “flat” appears to be about 1/2 over IMO. [4th chart at link above]

  23. machinehead says:

    By the way, BR published this long-term chart of the S&P index a couple of weeks ago:

    I saved it because it’s a beautiful, long-term, log-scale chart. But it contains a couple of serious omissions. The S&P chart would have you believe that the US economy cruised for an amazing 15 years from 1938 to 1953 with no recessions. It never happened, as can be verified from the NBER’s official recession dating page. NBER shows two recessions that are missing from the S&P chart, in 1945 and 1948-49:

    The unfortunate lesson is that there’s plenty of sloppy data out there on the web, even from highly reputable sources such as The Big Picture. As I’ve learned from personal experience, there is no substitute for auditing market data year-by-year to weed out corrupted and missing information.

  24. Futuredome says:

    Yeah, but 45 was a post-war recession as the US began to demoblize from WWII. Not a ‘true’ recession.

  25. spigzone says:

    1. The world has now entered the age of Declining Oil.
    2. The amount of carbon being put into the atmosphere this year was 6% higher than last year, the largest yearly increase ever recorded, and substantially worse than the ‘worse case scenario’ of just five years ago. This is expected to continue.

    By the end of 2016, per a leaked comprehensive study done by the Joint Forces Command of the US (responsible for US Military logistics planning), world oil production will be short 8 to 15 million barrels a day from Jan 2010 levels. A similar leaked German Military study came to the same conclusion.

    Consider what the world economy would look like with 10 million barrels a day of petroleum withdrawn from world markets.

    Now consider what the world financial system would look like with global GDP steadily shrinking and the price of oil somewhere north of $150/bbl. Forever.

    These are hard cold fact based realities. They ARE going to happen.

    The past long term stock market behavior chart is USELESS as a predictor of future behavior in the face of such gargantuan ‘never before in the history of modern civilization’ events unfolding.

  26. jadogsl says:


    This is 1936/37 not 1945ish
    When stimulus was take away …… Double Dip

  27. It is also worth mentioning that all four secular bull markets started off with very low P/E’s (from 7 to 13), with the last two starting at 7 and 9 (far from today’s readings). Typical secular bear market started off from around 19…

    All data can be found here:

  28. CitizenWhy says:

    I wonder if these three factors make any historic comparisons shaky:

    The Fed propping up today’s stock market. How long can this go on?

    Rapid trading on an unprecedented level. Fueled by the Fed.

    Permanent high unemployment and small job creation (in the USA as opposed to US companies creating jobs abroad). For which the Fed has nothing that can help. Supposedly its cheap money is supposed to fuel investment in real companies in the USA but that’s not how things work any more.

  29. DeDude says:

    Spigzone; actually solar is getting to be competitive already and will become more and more attractive as oil prices increase. We are on the road to a switch to electric cars, so both home and most transportation energy can uncouple from oil if its price go much higher. The main problem with solar is not being available at night, but you can store it in batteries or as hydrogen or methane. I would not be surprised if 20 years from now all new houses would be build off grid and self sufficient, with a small backup generator in the back yard.

  30. [...] Yesterday we looked at 4 Major Secular Bear Markets. [...]

  31. It really depends on the bear market and its degree and the amount of monetary inflation that occurs while it is playing out. For instance, the grand supercycle bear market that played out in the 18th century made its lows 68 years after the top. Japan’s bear market so far has made a first major low 19 years after the top, and it is not yet certain if it really was THE low.
    There is no guarantee that the past will repeat exactly as before, especially considering the extremely small sample size. However, since the true money supply in the US economy is up over 50% since January 2008, a good argument can be made that the nominal lows are in and that the market’s collapse will only continue to get worse in real (gold) terms.

  32. davros says: gives an excellent overview of the current secular bear market and the prospects for it over the next several year. It gives a reason for the generational nature of secular bull/bear cycles and largely supports this article’s conclusions as to the duration of the current secular bear. Of course, I am somewhat biased, having written the referenced paper….

  33. Jverse says:

    Dow Jones Industrial Average on a log scale monthly chart 1900- present – Today’s pattern is similar to ’66-’82 with low like ’73-’74. Lable was missing from the top of the chart.

  34. [...] A look at four secular bear markets.  (Big Picture) [...]

  35. cdwight says:

    The Dow in the 1930s was very speculative much more similar today to the Nasdaq that the Dow. If you look at the Nasdaq chart, you will see that 2000 corresponds to the peak in the Dow in 1929. This suggests the bottom in the early 1940s is still a year away, however that may be the final low for this cycle. I would recommend keeping your powder dry unless a clear breakout on the upside happens.